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The Buffett Indicator

currentmarketvaluation.com

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Re: The Buffett Indicator

#71

Post by bruce343434 »

ItsMonkk wrote: post #33
hhmc wrote: post #10

Earlier quoted context omitted.

An inverted yield curve has accurately predicted 9 out of the last 5 recessions ;) You can even see it on the chart in the linked article, in 2005/06 — that time, it was different.

Fed Fund Rate vs 30YT since 1970(only cherry picking this year because the data on fred is poor before this period, and end of gold standard is significant) is a perfect 8/8[0]. [0]: https://fred.stlouisfed.org/graph/?g=ENDs

Which curve am I looking at and for what? The blue line dips a lot of times, but only sometimes does a dip coincide with a recession.

Re: The Buffett Indicator

#72

Post by amelius »

greesil wrote: post #67

I thought for sure we were headed for a recession prior to covid based on this. The great thing about being a permabear is that eventually you are right. In the meantime you're a terrible investor who can't afford to buy a house. And then when your predictions are fulfilled, the prize for winning is everything going to crap in the world

You can invest in put options.

Re: The Buffett Indicator

#73

Post by M3L0NM4N »

roenxi wrote: post #70
paulmd wrote: post #68

Earlier quoted context omitted.

> sitting on piles of cash in the past for years and years, avoiding buying securities when they are overvalued. He never tried timing the market, simply waiting for the right moment. It’s not quite clear what you’re trying to say here, because if you popped into a newbie investment forum and said you were sitting on a pile of cash that you were avoiding investing because the market was overvalued, you’d be told that…

The denizens of the investor forum would be wrong; it isn't trying to time the market. This strategy is simply valuing the stocks. The problem with the plan is that holding piles of cash is a game for losers; you need the money to be in some sort of asset - it matters not what - to avoid the printers of the central banks. There is a real chance that stock prices never come down as much as everything else goes up.

I firmly believe that you should just invest on a fixed schedule. Every month, every year, whatever. And if you see a significant drawdown in between those periods you can buy in before the next scheduled buying time.

But never get scared from investing when stocks are too high - this strategy works one way because you should always be long the market.

Re: The Buffett Indicator

#74

Post by plater »

amelius wrote: post #72
greesil wrote: post #67

I thought for sure we were headed for a recession prior to covid based on this. The great thing about being a permabear is that eventually you are right. In the meantime you're a terrible investor who can't afford to buy a house. And then when your predictions are fulfilled, the prize for winning is everything going to crap in the world

You can invest in put options.

Well if the bear does not come then a put option is useless. That's the problem OP has by being a bear.

Re: The Buffett Indicator

#75

Post by plater »

dcolkitt wrote: post #25
aazaa wrote: post #8

The problem with these indicators is that, although they may indicate over- or undervaluation, they tell you nothing about when a mean reversion will happen. As Keynes famously said: "The market can stay irrational longer than you can stay solvent." An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion.…

Another way to think about this is that historically equity returns are so consistently high that even with an accurate predictor of returns it’s not worth not being exposed to stocks. Even if you know the next ten years will be in the bottom decile of returns for the S&P 500, you’re still better off than with cash.

Well, ten years from now the S&P500 could very well be 30-40% below the current valuation.

"the bottom decile of returns for the S&P 500" I guess we have not yet seen what that means. The next ten years might show negative yearly returns.

Re: The Buffett Indicator

#76

Post by pfortuny »

sb057 wrote: post #44

I would just like to point out the fact that the S&P 500 is almost four times higher capitalized than it was a decade ago. There are three obvious reasons for this that come to my mind: * There has been massive asset inflation. * The market is in a speculative bubble. * The 500 largest American companies really are ~4 times more valuable than they were 10 years ago. Even with #3, the best case scenario, that alone sh…

Saving is worthless is another reason.

(I have said this above, though): if money today is worth less than money tomorrow, you want to get rid of it as fast as you can. People want to "save", anyway. This implies that the only way to save money is to invest it in risky assets. There is no point in buying bonds as investment for the general investor (only for hedging) if they will be worth less tomorrow than today -you are burning money, literally.

Does this not look very much like inflation? (i.e. if you do not spend your money _right now_ you may not be able to buy anything tomorrow)..... It is inflation but Central Bankers do not want to see it.

Re: The Buffett Indicator

#77

Post by plater »

lotsofpulp wrote: post #26
dbs wrote: post #6

Earlier quoted context omitted.

Same can be said of market valuation in 99/00. And just like at that time people are looking for adjusted valuation measures and all type of excuses to justify unrealistic growth expectations. Like ALL previous bubbles it will end in tears.

Did the companies of 99/00 have many years of profits anywhere near the companies of today?

Cisco and Ericsson did.

Re: The Buffett Indicator

#78

Post by mellavora »

hhmc wrote: post #10
aazaa wrote: post #8

The problem with these indicators is that, although they may indicate over- or undervaluation, they tell you nothing about when a mean reversion will happen. As Keynes famously said: "The market can stay irrational longer than you can stay solvent." An indicator that does a pretty good job of signaling the "when" of a recession, and by extension the likely "when" of large market corrections, is yield curve inversion.…

An inverted yield curve has accurately predicted 9 out of the last 5 recessions ;) You can even see it on the chart in the linked article, in 2005/06 — that time, it was different.

So you are saying that a plausible mechanism leads to a ~50% prediction accuracy?

I'm curious how this stacks up to the accuracy of other prediction methods? Off the cuff, this one doesn't seem too bad. esp given the stochastic nature of the variable being predicted.

Re: The Buffett Indicator

#79

Post by plater »

danielmarkbruce wrote: post #18
mmmmkay wrote: post #4

Earlier quoted context omitted.

nvm, just got to the "Criticisms of The Buffett Indicator" section where they cover just this topic :)

They don't cover the % of revenue derived from overseas. Ie the GDP of the US is less meaningful over time for the S&P 500. It really should show total market cap / GDP of relevant jurisdictions weighted.

I don't think you are wrong, but then some of the US GDP belongs to other countries so there are also some deductions to do.

Re: The Buffett Indicator

#80

Post by phreeza »

mellavora wrote: post #78
hhmc wrote: post #10

Earlier quoted context omitted.

An inverted yield curve has accurately predicted 9 out of the last 5 recessions ;) You can even see it on the chart in the linked article, in 2005/06 — that time, it was different.

So you are saying that a plausible mechanism leads to a ~50% prediction accuracy? I'm curious how this stacks up to the accuracy of other prediction methods? Off the cuff, this one doesn't seem too bad. esp given the stochastic nature of the variable being predicted.

"Accuracy" in statistical terms is likely even higher because that would include the predictions of "no upcoming recession".
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